IHS: Global home appliance industry continues to consolidate, while companies undergo transformation
• The major home appliance supplier market continues to consolidate within the top 10 appliance companies, which accounted for 66% of global unit shipments in 2017, compared to 57% in 2015. The top 15 global major home appliance companies accounted for nearly 75% of global shipments in 2017.
• Recently Chinese electronics and appliance maker Hisense Co. Ltd. bid to acquire a controlling 51% stake in Slovenian appliance maker Gorenje Group.
• When global unit shipments in 2017 from both companies are added together, they would add up to nearly 3% of the global major home appliance market, including room air-conditioners, which would bring the combined company near to the top 10 ranking list.
• The outlook for the home appliance market looks positive, backed by some strong growth drivers and also with the news of the recent relaxation in the US-China trade war. In fact, the global major home appliance market is projected to grow at five-year compound annual growth rate (CAGR) of 5.2%, from 717 million units shipped in 2017 to nearly 900 million units in 2022.
Home appliance companies are going through a much-needed transformation phase, but at a gradual pace. There has been a gradual, but positive, shift in the mind-sets of home appliance companies, from working purely as appliance manufacturers, to approaching business more as a technology company or a service provider would. This transformation is a potential indication of long-term success.
The home appliance industry is turning more mainstream, with digitalized technology, as appliances evolve. This next generation of connected appliances will be more energy efficient, smarter, intelligent and integrated, with improved security and safety. They are already playing an important role, not only within the entire smart home ecosystem, but also extended outside the home, into cars, bikes, wearables and offices.
Innovation and design re-engineering are becoming crucial to business success. Connectivity technology has also opened a whole new world of business opportunities, resulting in companies developing and strengthening their technological capabilities, to serve the Internet of Things (IoT). However, to survive in the IoT era, companies must develop a very clear IoT strategy, as the industry’s focus shifts from just providing connectivity features, to providing solutions to consumers that rely on artificial intelligence, big data, cloud computing and IoT ecosystems. Robotic technology is also gaining attention from appliance companies.
To keep pace with the evolving market, and to gain market share in this volatile market locally as well as globally, companies need to strategize and look for mergers and acquisitions, joint ventures, technology tie-ups and partnership opportunities within and outside the traditional supply-chain spectrum. They also need to collaborate more across allied businesses offering integrated services.
IHS Markit forecasts further consolidation within the home appliance market, as key players in the appliance industry are looking to increase their corporate footprints into new territories and market segments. Major home appliance manufacturers will continue to relocate and expand their manufacturing facilities in new locations, to gain share, increase cost efficiency and get closer to addressable regional markets.
In one recent example, Hisense Group offered the winning bid to Gorenje, beating out Haier Group, Midea Group and Hefei Meiling. While Hisense will have a controlling share of the new company, other major shareholders include International Finance Corporation with 11.8% and Panasonic Corporation with 10.7%. Hisense has also entered into a partnership with German-based BASF, the world’s largest chemical company, to supply customized polyurethane insulation for Hisense refrigeration appliances.
Hisense’s acquisition of Gorenje is mutually beneficial to both companies, as it complements the core businesses of both companies in the following ways:
From the point of view of global expansion, this deal facilitates the entry of both companies into new local and international markets. Hisense will now expand into Western and Eastern Europe, while Gorenje will expand in the Middle East, Africa and Asia — including China, which boasts the world’s largest appliance unit-shipment volume. Chinese consumers are also increasingly willing to consider buying international brands. Launching Gorenje’s premium brand Asko in China could also be a good strategy, similar to the recently announced promotion of its ‘AEG’ brand by Electrolux in China, in partnership with Midea Group.
The North American presence of Hisense — along with Gorenje’s strategic distribution-level partnership with American premium appliance maker, Sub-Zero Group, to distribute Gorenje’s premium and high-end laundry and dishwasher brand Asko – will also help both these companies expand into the United States, which is world’s largest appliance market, in terms of revenue. This acquisition deal will also speed up Gorenje’s projected plans of doubling its US sales by 2020, while continuing to grow stronger in Asia.
From a product portfolio perspective, Gorenje’s strengths in large cooking and dishwashing appliances complements Hisense strength in refrigeration, air-conditioning and laundry appliances.
From a cost efficiency point of view, Gorenje’s low-cost production and operational capabilities in key European markets will further help Hisense increase its footprint in Western and Eastern Europe. Hisense, with its low-cost production, distribution and channel management in China and other key markets, will help Gorenje improve its market position in various markets in Asia-Pacific, the Middle-East and Africa.
Hisense enjoys a leading position in the development of connected appliance technology and also its advancements in the field of Industrial Revolution 4.0, which will bolster the technological know-how of Gorenje.
The home appliance market will continue to witness more consolidation, with more mergers, acquisitions and tie-ups expected. These business deals will expand beyond appliances companies, into companies providing technological know-how, expertise and support for the home automation segment, as well as across other allied companies and service areas. There is also growing interest from private-equity firms in acquiring home appliance and home automation companies, which will serve to keep investments in the industry going strong over the next few years.
By Dinesh Kithany, senior principal analyst, smart home & appliances, IHS Markit